Higher education: The college shakeout is overdue, and important

India now produces more engineers and MBAs than the US and China combined. Our annual output of 15 lakh engineers and 3 lakh MBAs is way ahead of the US (1 lakh engineers and 1.25 lakh MBAs) and China (11 lakh engineers and 75,000 MBAs). This is not all dysfunctional; India’s population is much larger than the US and China’s lack of elections means it faces less political pressure for higher education expansion than we do.

But India’s challenge is multiple tipping points at the intersection of employment and employability. About 30% of engineering and MBA capacity is unfilled because students are unhappy with the package of quality, price and job outcomes. The big engine of engineering education of the last 20 years — Information Technology hiring — is slowing down and changing gears. Manufacturing employment — a logical home for an engineering education — is stuck at 12% of the labour force since 1991. And labour laws are forcing employers to buy machines rather than hire people. But the primary issue is quality — a survey by MBAuniverse.com estimates that outside the top 20 MBA colleges only 24% of students are employable.

Reports suggest this number is not very different for engineering. Assocham believes that campus placement outside the top 20 colleges is 10%. None of this means that our annual student output will be unemployed; it just means they will have to take jobs they did not expect and get salaries they may have got without the degree. From a student’s perspective, the education was a poor return on their money and time. From an employer’s perspective, recruiting is harder because most college degrees don’t have the signaling value that they used to.

But this overcapacity is not all bad. Unlike medical colleges where the license raj means we only have 33,000 doctors starting every year and capitation fees of upto Rs 1 crore are not unheard of, this glut is forcing MBA and engineering colleges to re-price , rebadge, improve quality or exit. Repricing has begun; capitation fees have almost vanished and annual fees are down. The race for quality is evident in faculty salaries and focus on learning outcomes. Rising real estate values are creating incentives for exits because many colleges are worth more dead than alive. But some will deservedly die. The IIPMs of the world may be down from 8,000 to 500 students.

There are some downsides. The policy goal of 30% gross enrollment ratio (number of students in college) becomes harder to reach as capacity decreases. It may influence demand; the cutoff percentages at Delhi University for arts and commerce rose this year while sciences declined. Less colleges make things difficult for employers because they have fewer ponds to go fishing in. And the thoughtful paper “How many engineers does it take to change a light bulb” by Akhilesh Tilotia at Kotak Securities worries about the default impact of this glut on education loans (whose volume has grown 1000% in ten years) and the lower salaries on domestic consumption.

These changes have important implications for students, parents and policy makers. Students must realize that not all degrees and colleges are equal and must be more careful in their choices. They must complement college instruction with soft and specific skills. They must do internships concurrent with school and college because — when they enter the job market — these internships will change their resume in ways that academic grades cannot. They must get 3-5 years of work experience after their engineering or college degree before getting an MBA. They must pick their first job for how much they will learn rather than how much they will earn. They must master English; English is less a language than an operating system like Windows.